Upward mobility? Earnings trajectories for recent immigrants

by Ben Brindle, Madeleine Sumption & Jonathan Portes

This analysis uses new data from HMRC to show how the size and earnings of the migrant employee workforce has changed over time in recent years.

Background and broader trends

The period for which we have data saw very large shifts in migration flows, driven both by policy and external events, as well as dramatic developments in the labour market more generally. In 2014, transitional controls restricting free movement with Bulgaria and Romania ended, resulting in a sharp rise in EU migration; this reversed after the Brexit referendum, but non-EU migration began to rise.  The pandemic led to a significant reduction in the number of EU resident workers. In January 2021, the introduction of the post-Brexit immigration system ended free movement while liberalising migration for work from outside the EU. The latter grew sharply between 2021 and 2023, especially in the health and care sector, particularly aftercare workers were added to the Shortage Occupation List in early 2022. These developments are summarised in both Portes (2024) and Sumption (2022) and are reflected in our data (Figure 1) as well as in published ONS migration statistics.

Figure 1

Figure 1 shows that the number of EU workers appearing on payrolls for the first time fell steadily towards the end of the 2010s and then more sharply during the pandemic. In 2023, the number of new EU employees was 85% lower than in 2015, at just under 67,000. This is not necessarily an indication of the level of new arrivals to the UK as the number will include people who have the right to reside and work in the UK under the EU Settlement Scheme but had not previously worked as employees (e.g. people who were students, had caring responsibilities, or were self-employed).

The data also show the very sharp post-pandemic rise in new entrants to the employee workforce from outside the EU in the post-pandemic period, with more than 1.2 million new entrants in 2022 and 2023 alone. While the number of work visas rose sharply during this period, this cannot account for all of the rise, which will include people who were already resident here but had not worked before as employees, students, dependants of those arriving on student and work visas, as well as Ukrainian refugees and new arrivals from Hong Kong. In other words, even though most non-EU migrants coming to the UK in recent years have not been on work visas, they have nonetheless made a substantial contribution to the size of the labour force, accounting for all labour force growth since the pre-pandemic period (UK in a Changing Europe, 2024).

Attrition from the employee workforce

The HMRC data provide a crucial new insight into how long migrants remain in the employee workforce over time because we can track how many people who first appeared in, say, 2015 were still in the dataset a few years later. If people disappear from the dataset, it will not always mean they have left the UK: some will have stopped working, for example, to care for children, or become unemployed or moved to self-employment, although return migration is likely to be the major reason over the longer term.

Of the EU-origin migrants who registered in 2015, only about half were still on payroll in 2023 (Figure 2). Attrition of non-EU origin migrants was lower, but still significant. For UK-origin workers, it was unsurprisingly much smaller, but still represented 1 in 6 workers—most likely due to moves out of employee status, likely mostly to retirement or other forms of inactivity. For established workers—that is, those who first appeared in the dataset in 2014 or earlier—attrition rates were lower, with 60% of EU-origin workers still in the data in 2023, while just under three-quarters of already-established non-EU origin workers remained.

Attrition rates are highest in the first year after entry, likely reflecting the departure of groups who only come to the UK for short periods, including students, their dependents, and seasonal workers. Attrition was lower among non-EU employees who entered the workforce between 2020 and 2022, however. The composition of new arrivals from outside the EU changed after the introduction of the post-Brexit immigration system, with higher shares coming on visa routes where people generally stay for longer spells. For example, the number of people coming to work in the health and care sector increased sharply over this period.

Figure 2

Earnings of new entrants to the employee workforce

The HMRC data also provide information on migrants’ earnings and how their distribution has changed over time. As noted above, the end of free movement and the introduction of the post-Brexit immigration system has changed the composition of people coming to the UK. This will also affect the earnings of new arrivals. For example, the new immigration system requires EU workers to meet salary requirements, while free movement did not. On the other hand, skilled EU workers who are eligible for work visas under the post-Brexit immigration system might find the UK less attractive due to Brexit or the end of free movement.

For non-EU workers, the increase in the number of people coming to the UK could, in theory, result in either higher or lower earnings among new entrants. The non-EU origin group includes larger numbers of skilled workers than in the past. However, the Skilled Worker salary threshold was significantly lower between 2021 and 2023 than it was before Brexit, and care workers were added to the route in February 2022 despite not meeting the skills threshold in place. Meanwhile, many people arrived on other visas with no earnings criteria (such as Ukrainians or international students working part-time during their studies), and dependents of those on work and study visas can work in any job. Finally, the Graduate Visa allows international students to work in any job for two years after completing their studies. Portes (2023) shows that the expansion of the non-EU-origin workforce has occurred across a number of sectors, including some where work visas are unlikely to be the main factor.

How have the earnings of newly arriving cohorts of migrants changed over this period? The results depend slightly on whether we look at earnings at the end of the year migrants take up employment in the UK or at the end of their first full year (Figure 3). If we look at migrants in the first year of employment, this will include people who only stay in the UK for very short periods, such as students working part-time or seasonal workers (many of whom are low-paid). Looking at earnings in the first full year of employment (e.g. December 2016 earnings for people who first appeared in the dataset in 2015) may better capture longer-term entrants because attrition from the workforce is lower after the first year. This may be more relevant if we are interested in, for example, the implications of recent migration for public finances.

Compared to the overall workforce, both EU and non-EU-origin employees had relatively low earnings in the year they entered the labour market (UK-origin new entrants, who by definition will be in their first-ever job, have much lower earnings than either group). The earnings profile of new entrants is higher if we look at the end of the first full year of employment, likely due to a combination of individual earnings improving and people in low-wage jobs leaving the labour market (e.g. students working part-time during their studies).

How, then, has the post-Brexit immigration system affected the skills and, thus, earnings profile of new EU migrants? If we look at earnings in the first year of employment, the trend is surprisingly flat, given the major changes in the immigration system for both EU and non-EU origin workers. From 2015 to 2019, each newly arriving cohort of non-EU citizens earned progressively more compared to the UK workforce median. This upward trend ended with the pandemic and post-Brexit immigration system, but at least as of December 2023, there had not been a decline. Earnings for new cohorts of EU-origin workers were marginally higher than pre-Brexit.

If we look at migrants at the end of the first full year of employment, i.e. after removing those who spend only a short time in the UK employee workforce, relative earnings improve for each successive non-EU cohort from 2015 to 2021. We see a small decline in relative earnings for the 2022 cohort, although it remains higher than in the pre-pandemic period, and we do not yet have data for the 2023 cohort (which will be measured in December 2024).

Figure 3

Note that these figures provide only an early glimpse of the profile of new arrivals in the labour market. The 2023 figure for EU new entrants to the labour market will include workers who arrived under free movement but have only entered the labour market more recently. In addition, visa grants to EU citizens have been surprisingly low since free movement ended, thus relatively small changes in the composition of EU new entrants could have a sizable impact on their earnings profile from one year to the next.

Turning to higher and lower earners, there appears to have been a significant compression of the earnings distribution among non-EU new entrants. At the 75th percentile, they have fallen somewhat behind the overall workforce, but at the 25th percentile, they have overtaken the overall workforce; in other words, the proportion of new non-EU entrants on either very high or low pay fell. Meanwhile, the earnings distribution of EU-origin workers has widened over time—at the 25th percentile, EU-origin workers’ relative earnings (after the first year) fell, while earnings grew sharply at the 75th percentile.

New entrants’ earnings progression over time

Our data also allows us to look at earnings trajectories over time for the same cohort of migrants. A key caveat to all of the analysis is that because many migrants leave the employee workforce (as shown above), changes in average earnings over time may partly reflect changes in the composition of the workforce due to emigration.

On the one hand, some theories of migrant self-selection suggest that migrants who succeed in the labour market are less likely to emigrate; however, some studies find the opposite, particularly for highly skilled workers, who may simply be more mobile. For example, there is evidence that out-migration of EU workers since 2019 has been particularly marked in relatively low-paid sectors like accommodation and hospitality, which might bias estimates of earnings growth for EU-origin workers upwards. However, this is less obviously the case for non-EU origin workers. Existing data suggests that migrants who come to the UK from outside the EU for family reasons or to claim asylum both have much lower earnings and are much less likely to leave, while most work migrants leave within a few years.

How do the average earnings of newly arriving migrants change over time? Figure 4 shows the median earnings for those entering the labour market in a given year relative to the median earnings of the entire workforce in that year.

Figure 4

The data suggest that non-EU origin employees’ median earnings have progressed somewhat faster over time. For example, while it took 2015 non-EU entrants around six years to reach the overall median wage, 2021 entrants had already exceeded it after two years. This was a period of very considerable turbulence in the labour market, particularly during the period of the pandemic, and then, more recently, historically high nominal earnings growth. Nonetheless, the data suggests that either more recent non-EU arrivals were seeing strong earnings growth relative to the overall workforce or that lower earners were disproportionately leaving the employee workforce within the first few years—or some combination of the two.

While more recent non-EU entrants have experienced faster earnings progression, the relative earnings of non-EU employees overall fell between 2021 and 2023 (Figure 5). How can the two be squared? Whereas the progression data look at each cohort separately, the overall picture is dependent on the size of each cohort. In other words, since non-EU migrants earn considerably less when they first enter the labour market, the overall earnings of non-EU employees will be lower when there are more new entrants, as was the case in 2022 and 2023 (see Figure 1). This is a compositional effect; it does not indicate that new entrants in this period were earning relatively less than new entrants in most of the pre-pandemic period. Indeed, our data suggest this was not the case, at least in the first 0-1 years after arrival. Whether this persists will depend both on earnings growth and on attrition (i.e. how many low earners leave the UK over the coming years).

EU-origin workers who first entered the labour market in 2021 and 2022 appear to earn more, relative to the median wage than earlier cohorts, but their earnings growth is weaker than their non-EU counterparts. It took five to six years for EU workers who entered the workforce in 2015 and 2016 to reach the median earnings of the overall workforce.

Figure 5

Conclusion

The analysis presented above is very preliminary and based on aggregate data only – we follow groups whose composition changes over time and do not have information on important factors which impact earnings, such as gender and age. Not all the figures reflect the impact of the unusually large 2023 cohort of non-EU citizens coming to the UK. However, our initial analysis suggests that:

• Substantial shares of migrants leave the UK’s employee workforce within the first few years, and this was particularly the case among EU workers who started working in the UK under free movement.
• The monthly earnings of non-EU employees who entered the labour market between 2015 and 2021 exceeded the UK median earnings within a few years, with the pace of this growth increasing for more recent cohorts. While this may owe to a higher skills profile of the more recent pre-2022 non-EU entrants, particularly strong earnings growth in the first year after entry suggests selective out-migration was also an important factor.
• EU-origin entrants in 2021 and 2022 earned more than previous cohorts. However, earnings growth was lower than for non-EU citizens who started working in the same year, even though both groups now face the same migration rules.

Looking forward and focusing on the very large cohorts of new non-EU entrants in 2022 and 2023, their relative earnings very similar to that of the 2021 cohort and higher than in most of the pre-pandemic period.  Given the changes to the migration system and the resulting very large increase in the number of new entrants, this stability is in itself surprising.  Despite the rapid expansion of migrant workers in some low-paid sectors, in particular social care, overall relative wages of the 2022 and 2023 cohorts initially after arrival were higher than for most of the pre-pandemic period, when numbers were much lower.

It is the large size of the recent cohorts that appears to have driven the overall decrease in overall non-EU citizens’ relative earnings in 2022 and 2023 rather than lower earnings at entry.  Similarly, EU citizens’ overall relative earnings have increased due to the fact that fewer EU citizens are recently arrived.

However, in their first full year of employment, the 2022 cohort saw slightly slower earnings progression than the 2021 cohort, although they were still outperforming pre-pandemic cohorts. It is too early to determine if this trend will persist.  Given the size of the 2022 and 2023 cohorts, how their earnings progress in the years ahead is clearly of great interest.  Much will depend on the composition of employees who stay in the UK, but also on labour market developments in the sectors in which they are concentrated. For example, if relatively low-earning care workers are more likely to remain long-term, we might see slower earnings growth than in the past.

Acknowledgements

Thanks to Michael O’Connor for comments on a previous draft. This analysis was produced with the support of Trust for London, one of the largest independent charitable foundations in London, which supports work that tackles poverty and inequality in the capital. More details at www.trustforlondon.org.uk.

 

Underlying data – HMRC RTI earnings by nationality